While many fintechs and fintechs have cited Open Banking and PSD2 as an opportunity to shift the balance of power, a Temenos-Accenture report has found that, while there are certainly challenges at hand for the incumbents, bankers are more optimistic in their outlook than one might expect.

Temenos’ 10th annual banking survey, which includes feedback from 248 senior banking executives from across the globe, reveals that, among other findings, 80% of bankers see Open Banking as an opportunity, and 62% would be prepared to distribute third-party products through their platforms and channels. The findings underscore banks’ willingness to change their business models to improve profitability, which emerged as the top concern in the survey.

“Now that PSD2 is taking effect I think the industry is waking up to how significant a piece of legislation it is,” Ben Robinson, Chief Strategy Officer, Temenos, told PaymentEye.

“It’s now forcing the banks to open up by sharing their customer data and their infrastructures. We now see technology and regulation pushing in the same direction.”

According to the findings, banks increasingly view other banks as their main competitive threat. New challenger banks are now perceived as the leading competition, cited by 22% of respondents, which may explain why many banks are now launching digital brands themselves.

“Over the last couple of years, we’ve seen lots and lots of incumbent banks launch challenger brands”, Robinson said. “Where they have an advantage here is that not only are they able to invest in challenger brands, but those challengers then have the trust that comes from that parent company and are able to move at the speed required, because they’re digitally native. It’s always difficult to do something really disruptive within an existing structure, because if you’re going to open a bank that distributes third party products and services you’re going to cannibalise some of your revenue lines. It’s much easier to do so with a new vehicle that’s free of those corporate constraints.”

“Not only do these brands appeal to a younger demographic, but they have completely new processes, people and technology, so they can really move very fast. They’re open in their ethos, so they’re prepared to distribute third party products.”

At the same time, there is a growing acceptance that fintechs could help banks alleviate competitive pressures, with the majority of respondents expressing interest in collaborating with fintechs. However, many banks may find that their internal procurement processes are a major hurdle to successful collaboration.

“73% of our survey respondents, want to partner with fintech companies”, Robinson said. “It’s really difficult for them to do so, for two reasons. Firstly, because there are just so many fintech companies out there, depending on your estimate there’s something between 5,000 and 20,000. So it’s really difficult to work out which are the best ones to work with. But the much bigger problem, for 55% of our respondents, is that their own procurement processes are just way too heavy to work with fintech companies. The statistic we have is that it takes about 18 months to steer a fintech company through a bank’s procurement processes.”

“Banks increasingly recognize what it takes to succeed in the digital age,” David Arnott, Chief Executive Officer, Temenos, said.

“To compete effectively against challenger brands and internet platforms, they need to embrace end-to-end system replacement. This will allow them to digitize operations, offer data-driven and personalized customer experiences and open up their platforms to third-parties. As the survey shows, banks are upping their investments in the right areas, notably core replacement, which leaves them well-placed for the future. However, for those banks deferring digitization efforts or limiting them to digital channels, the future will be less forgiving.”

Other key findings from the survey include:

• Respondents cited profitability as the biggest challenge to their business.
Other concerns included meeting regulatory requirements, securing customer loyalty using data effectively, addressing increased competition and managing the growing risk of cybercrime.
• In 10 years, bankers estimate that two-thirds of customer interactions will be through chatbots. They believe that only 7% of interactions will be in-person.
• Cloud technology is gaining traction within banks. Only 22% of respondents are now worried about data security in implementing cloud solutions, compared to 50% in 2011, and only 29% cited regulation as a barrier to adoption vs 39% in 2012.